Does excess employment affect the relative performance evaluation usage in CEO turnover?Evidence from Chinese listed firms

Xinyi Cao and Norio Sawabe

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: This study investigates the application of Relative Performance Evaluation (RPE) theory on forced CEO turnover decisions in the context of Chinese listed firms. Using CEO dismissal data spanning from 2009 to 2019, we observe a negative correlation between industry peer performance and the likelihood of forced CEO turnover, which contradicts the assumption of RPE theory. Furthermore, we emphasize the significance of considering Non-Financial Performance Measures (NFPMs) in CEO turnover research. Our research reveals that the extent of excess employment is negatively associated with the probability of forced CEO dismissal, and it also affects how a firm responds to peer performance. Specifically, when firms exhibit high social performance, proxied by excess employment, they tend not to lay off more CEOs due to industry downturns. This study offers a potential explanation for Jenter and Kanaan (2015)’s puzzle of why firms terminate more CEOs when their industry experiences a recession. We argue that prior literature, which predominantly focuses on the relationship between financial performance and CEO turnover, may be incomplete. It is imperative to also account for the impact of NFPMs.

Keywords: Consistency; Relative performance evaluation; excess employment; forced CEO turnover; Chinese listed firms (search for similar items in EconPapers)
JEL-codes: G32 M21 M41 (search for similar items in EconPapers)
Pages: 37
Date: 2023-12
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-hrm and nep-sbm
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